Hudson Technologies, Inc. is a leading provider of sustainable refrigerant products and services to the Heating, Ventilation, Air Conditioning, and Refrigeration (HVACR) industry. The company has demonstrated its commitment to customers and the environment by becoming one of the largest refrigerant reclaimers in the United States through multimillion-dollar investments in advanced separation technology.
Business Overview
For nearly three decades, Hudson Technologies has been a trusted partner to the HVACR industry, offering a comprehensive suite of refrigerant products and services. The company's primary offerings include refrigerant and industrial gas sales, refrigerant management services consisting primarily of reclamation, and RefrigerantSide® Services performed at customer sites to restore systems to designed capacity.A significant portion of Hudson's revenues is derived from the sale of refrigerants, which continue to represent a majority of the company's total revenues. The company also generates revenue from the sale of industrial gases, predominantly to the U.S. Military through a long-term contract with the Defense Logistics Agency (DLA). In 2023, the DLA contract accounted for $53 million in revenue, or approximately 18% of Hudson's total annual revenue of $289 million.
Navigating the Regulatory Landscape
The HVACR industry is highly regulated, and changes in regulations can significantly impact Hudson's business. The company is currently navigating the implementation of the American Innovation and Manufacturing (AIM) Act, which mandates the phasedown of hydrofluorocarbon (HFC) refrigerants. Under the AIM Act, HFC production and consumption will be reduced by 40% from baseline levels by 2024 through 2028.To address the ongoing HFC phasedown, the Environmental Protection Agency (EPA) has taken several actions, including the finalization of a Technology Transition Rule and the proposal of a Refrigerant Management Rule. The Technology Transition Rule sets limits on the global warming potential (GWP) of refrigerants used in new equipment, while the proposed Refrigerant Management Rule aims to reduce wasteful refrigerant leaks and support the recycling and reclamation of existing HFCs.
Hudson's Reclamation Capabilities
As the industry transitions to lower-GWP refrigerants, Hudson's industry-leading reclamation capabilities position the company to benefit from the increased demand for reclaimed refrigerants. The company's reclamation facilities are capable of recovering a wide variety of refrigerants and restoring them to Air-Conditioning, Heating, and Refrigeration Institute (AHRI) standards for reuse as certified EMERALD Refrigerants™.The proposed Refrigerant Management Rule includes language mandating the use of reclaimed refrigerants for certain applications and equipment. If the final rule is in line with the proposal, the industry will see the first federal requirement for the mandatory use of reclaimed refrigerants, which could lead to a pricing differential between virgin and reclaimed refrigerants. This would be a significant shift from the pricing dynamics of the past 20 years, potentially driving higher margins for Hudson's reclamation business.
Financial Performance
In 2023, Hudson reported annual revenue of $289 million, a 5% increase from the previous year. The company's net income for the year was $52.2 million, and it generated $58.5 million in operating cash flow and $55.0 million in free cash flow.For the first quarter of 2024, Hudson reported revenue of $65.3 million, a 15% decrease compared to the same period in 2023. The decline was primarily attributable to lower selling prices for certain refrigerants and a decrease in revenue from the DLA contract. Gross margin for the quarter was 33%, compared to 39% in the first quarter of 2023. The company reported net income of $9.6 million, or $0.21 per basic and $0.20 per diluted share, in the first quarter of 2024, compared to $15.5 million, or $0.34 per basic and $0.33 per diluted share, in the same period of 2023.
Guidance and Outlook
Based on the current pricing environment, Hudson expects full-year 2024 revenue to be in the range of $250 million to $265 million, with gross margin below the company's long-term target of 35%. The company noted that the lower pricing for certain refrigerants in 2024 provides an opportunity to replenish inventory at lower costs, which could be sold at higher prices in the future as the industry faces tighter supply dynamics.Hudson remains optimistic about the long-term outlook for the business, as the ongoing implementation of the AIM Act and the proposed Refrigerant Management Rule are expected to drive increased demand for reclaimed refrigerants. The company believes it is well-positioned to benefit from these regulatory changes, given its industry-leading reclamation capabilities and established customer and vendor network.